So with so many securities at or near extremes, where does that leave us?? If it wasn't for the 20-day moving average and the fact that it was Friday, both ES & NQ futures could have suffered substantially more given how long it has been since there was a meaningful correction. In other words, the weekend couldn't come sooner for equity bulls.
Friday's sell-off confirmed a major bearish formation, a daily bearish engulfment for both NQ and ES futures. This is when price-action "engulfs" the prior days range, which can signal a powerful shift in trend. That said, this move down still has not done that much technical damage, but the jury is still not out whether stocks are done correcting lower.
Besides maintaining 20-day support, as mentioned earlier, ES futures also manage to hold 3337, which was the exact proximity of the previous high last seen in late January. Typically, when up-trends hold their previous highs that is a signal of strength. ES futures must maintain this level to continue to indicate further strength is ahead.
Moreover, if Friday's price-action is seen as an exhaustion that also means that Monday's open should hold the lows seen Friday. Thus, early price-action next week is critical for bulls to remain optimistic. If Monday turns out to be a bearish follow-through, then it is likely that stocks are likely to pull-back significantly more.
